Honestly I can't say I understand everything he did there. I am still reading about Ito's calculus and sortino ratio.

Yeah Gummy gets out ahead of me pretty quickly as well (but that is very good!!!). But what an amazing group of people here!!! I learn more here than I ever dreamed.

The following site is Aswath Damodaran's, Professor of Finance and David Margolis Teaching Fellow at the Stern School of Business at New York University. He has an amazing array of spreadsheets and business data that is available for your use. It is free and regularly updated.

I think the past few exchanges illustrate the need for a collaborative tool to help streamline updates and availability - google spreadsheets could work here. If any more assistance is required to understand how to set this up I could volunteer to help.

edge wrote:I think the past few exchanges illustrate the need for a collaborative tool to help streamline updates and availability - google spreadsheets could work here. If any more assistance is required to understand how to set this up I could volunteer to help.

In any case, the changes are pretty cool.

Agreed!!!

But one person, Simba, (or small committee) still needs ultimate say over what is and is not accepted for the release version... We also need to reduce the load on Simba...

...and we of course need to be able to suck the release version off of google ss into excel.

Last edited by jms969 on Tue May 29, 2007 4:49 pm, edited 1 time in total.

I want to die peacefully in my sleep like my grandfather, not screaming like the passengers in his car.

If Simba agrees, I can collect revisions, stick them on my website then PM Simba so he can check them out and decide it they're acceptable.

The permissions/sharing policy available in the Google SS should support the kind of collaboration that JMS was talking about. Gummy's point needs addressing - I think the lack of functionality may have more to do with the fact that the product is very new and definitely still beta. The graphing capability is still very beta in terms of features.

I posted a link to the sheet on another messageboard and one poster thinks that the sheet's calculation of Sharpe Ratios is off:

"yea the sharpe ratio calculations don't take compounding into effect

they use Average(portfolio returns)-Average(tbill returns) to get the excess returns. it should be subtracting the tbill return from the portfolio return in each time period and then calculating the compound returns.

their sharpe ratios are historical underestimates in this case (sheets SP-72-06 and SP-85-06). "

Could either of you explain what the graph showing the "Probability of achieving less than 1000$P in 15 years" means?

The magic formula I gave above, namelyuses the historical mean return r and standard deviation s and the initial portfolio value Po.

The spreadsheet calculates the probability (based upon these parameters) that, in T years, your portfolio will be less than P.Actually, the horizontal axis is in units of $1K so, for the example shown in the left chart, there's a 50% probability that your portfolio will be less than $100K in T = 15 years.

Change the allocation and/or the time and get different probabilities.That's assuming you believe in Ito's magic equation.

After I entered the % of my allocations nothing appeared on the graphs. Am I missing a step? My total allocation comes to 100%

To relieve Simba I'll take a try at explaining. Just email the "faulty" spreadsheet to:pjponzo@golden.net

the sharpe ratio calculations don't take compounding into effect ... they use Average(portfolio returns)-Average(tbill returns) to get the excess returns. it should be

That's the "standard" definition. Indeed, the numerator is the "Expected" excess which is the same as the Average excess which is the same as the difference in the two Averages.

Cell Z3 on sheet Returns_85_06 uses the following formula:
=Portfolio!$K$28

Cell AA3 on sheet Returns_85_06 uses the following formula:
=Portfolio!$K$30

It looks like Cell AA3 needs to use the formula =Portfolio!$K$29, and the remaining cells in the row need new transposed links.

ERROR CHECKING REQUESTAlso, if you can eliminate this error check in the calculations and instead use simple 100% summary visual sanity checks, that reduces rework for each rev to enable efficient frontier Excel Solver calculations. I have redone the Solver work twice now and it's been obsoleted a third time. I will not be supporting efficient frontier additions moving forward if we can't find a solution that will be incorporated or planned with compatibility in mind.

CHANGE PLANNINGAlthough I'm Pi Tau Sigma and Tau Beta Pi and enjoy mathematical acrobatics, simplicity is our friend until the basic portfolio options and datasets get nailed down. It will let us focus on data quality and basic calculation integrity. I think after the portfolio request additions and resulting structures settle down we should initiate discussions (and polls!) around metrics that are most useful to Diehards overall. I'm a little worried that as we add metrics into the tool, we may start to lose the forest for the trees.

Of course, I'm a guilty party in this process as well, shooting for the efficient frontier calcs too early Portfolio Process Capability (Cp), Kurtosis, Monte Carlo analysis, discrete event simulations, and system dynamics models should all have their day in the sun, just maybe not yet (insert your "horse before the cart" jokes here).

Thanks for all the hard work Simba! This is the foundation for expansion work down the road.

Do fellow Diehards feel it would be useful to add costs for each investment choice (absolute return - cost - inflation = real investor return) and include them in calculations? Sorry if it's already in there...

In addition, does anyone have datasets we can add for the following asset subclasses:

Eric White wrote:Do fellow Diehards feel it would be useful to add costs for each investment choice (absolute return - cost - inflation = real investor return) and include them in calculations? Sorry if it's already in there...Eric

I agree with you wrt to expene ratios, Eric. At present, in many (most?) of the asset classes, there is a bit of both. The 1972 - 199x returns are most often from MSCII-Barra or CRSP or another source that does NOT include typical fund ER's, and the returns used after the launh of the corresponding Vanguard fund in 199x - 2006 DO include the fund's ER.

I think it would be preferable to subtract the Vanguard funds's Investor Class ER from the earlier returns of the corresponding raw index also.

My preference would be to continue using nominal returns however, rather than subtracting one inflation index or another.

edge wrote:I think the data source for EM has a developed market index listed - this does not seem correct.

edge - thanks for pointing it out but that's just a typo error.

The EM returns for the duration 1972-87 were compiled by Robert T and I listed the source of the returns (These are not true EM returns either, they are a combination of 50% Intl Value & 50% Intl Small combination, check the IFA website for more info).

MSCI EM returns are available from 1987 and VG EM returns are available from 1995.

Suppose you've got this marvelous spreadsheet going and you're compulsively diddling around your asset allocation (heaven forbid, maybe you're even started messin' with SCV, EM, REITS, and Commodities). After diddling for 5 hours you get your Std. Dev. to PLUMMET from 13.8% to 12.8% and, at the same time, your CAGR SKYROCKETS from 10.8% to 11%!

How do you judge whether this change is statistically significant? It seems like some statistical test is in order. If there's a 55%/45% chance that my new portfolio is better/worse than my old one, I probably wouldn't bother making a change. But if it's 80%/20%, that might get me thinkin'. Any way to estimate this?

Some additions include (Thanks Gummy. Your help is very much appreciated).
- One can now compare 5 different portfolios
- Chart shows only the selected time periods
- SS shows returns for both rebalanced & un-rebalanced portfolios.

Countour plots of sharpe ratio and compound annual return calculated from the 35 yr data, comparing various mixes of bonds and stocks, with various international, REIT, small cap value tilts, or with slice-dice are posted here:

P.S. The Intl Value looks strange to me... was there really only a .27% Value premium in EAFE from 72-2006?

sterjis,

I went back and verified the data for Intl Value and looked up VG's SEC filing. The data matched but Vanguard/Trustees' Equity Fund-International Portfolio became VG Intl Value (VTRIX) in 1997 so I went back and used the MSCI EAFE Value from 1975-1996 and VTRIX from 1997-2006 (instead of 1984-2006 that I was using earlier) now the value premium shows upto about 2% which is about the same for US Mkt as well.

Can you add VG extended market or other S&P completion type index? My 401k doesn't have total stock market, but has S&P 500 and the Russell small cap completion index. I used mid cap blend in place of it, but the completion index is more volatile than the VG mid cap.

Thanks for all your hard work this spreadsheet is fun to tinker with and is very helpful.

Peppe wrote:Can you add VG extended market or other S&P completion type index? My 401k doesn't have total stock market, but has S&P 500 and the Russell small cap completion index. I used mid cap blend in place of it, but the completion index is more volatile than the VG mid cap.

Thanks for all your hard work this spreadsheet is fun to tinker with and is very helpful.

Peppe,

I added VG extended Mkt returns to the spreadsheet. Latest version rev6e can be downloaded here

Has anyone sucessfully loaded the spreadsheet in OpenOffice? I'm using release 2.0.2 and even after enabling macros, it's not working correctly. I can't edit the blue boxes (OO says their protected cells), and the two graphs on the Portfolio sheet ("Portfolio Growth (Nominal) 19XX-2006") have nothing drawn in them.

I have access to Excel but I'm not a registered owner myself so I prefer to use OpenOffice. If anyone has experience getting Excel spreadsheets to work in OO I'd appreciate a conversion of Simba's latest rev6e.

I did as bob said, and OO.org spreadsheet allowed me to enter values, and the spreadsheet generated a graph and everything.

Often times, as with gummys spreadsheets, openoffice does not work with excel macros.

Also, I am using the Novell form of openoffice, which has extra excel macro support versus the regular openoffice. Often times, even with Novell openoffice, gummys spreadsheets do not work : ( But they are specifically working towards increasing the macro capability as I understand it.

If gummy and simba excel macro type spreadsheets are what you are trying to run using openoffice.org, I recommend downloading the novell form of openoffice.org from below. You will get less macro errors.